Monday, December 14, 2015

NB: Update 7, 8 Jan 16
There is a calc error** that I have amended for in the below figures. See more here. Revisions indicated with **.
==Original post
Last week, said on 7.30 Report: Leigh Sales posed an NBN question "So why then do you continue to back a broadband network that relies on a decrepit copper network?" ie FTTN

The Australian PM, Malcolm Turnbull in response said "under the approach we are taking to the NBN, we will get the network completed six to eight years sooner than it would be under Labor's proposed method and $30 billion cheaper or at less expense to the Government, which makes broadband more affordable."

In a previous post, I compared FTTP and FTTN assuming the networks were available at the same time. Here I would like to compare where there is a delay in the availability of FTTP at a household.

Model
I created a model to compare the costs and benefits of FTTP and FTTN, and accounted for the delay.
The CAPEX, OPEX and Revenue come from recently leaked NBN Co. estimates to replace ailing Optus HFC cable with either FTTN or FTTP. All these figures are generated for a single household. To get to a national perspective, multiply the outcome by 2.5M households ie 10M total households by 25% FTTN rollout.

The results of the model, show two time frames, after Year 10, and Year 20 for a variety of delays between arrival of FTTP - Yr 0 (at the same time), Yr2 , Yr 4, Yr 6, Yr 8. The last two scenarios being the ones suggested by the PM. The Year 10 and 20 scenarios assume that revenue, and OPEX are consistent over the 20 year timeframe.

Output of the Model
All figures in thousands of dollars. Negatives/losses in brackets. Some rounding to whole numbers.
Figures derived from model linked above. Model is in OSX Numbers, and translated in xls.
Revised** numbers only affect FTTN figures. FTTN Revenue / Opex down $150pa, $130pa. But some rounding errors when adding together.

FTTP commences at Yr 8: (Old/Revised**: not amended if diff < 10%;^)

Yr 10

FTTN

FTTP

Yr 20

FTTN

FTTP

GDP

12.8 / 10**

6

GDP

26 / 20**

20

Sales

6.4 / 5**

1.5

Sales

13 / 10**

9

Cash

(1.4)^

(3.5)

Cash

(0.7) / (1.0)**

0.8

Profit/(Loss)

(1.4)^

(1)

Profit/(Loss)

(0.7) / (1.0)**

1.7

FTTP commences at Yr 6: (Old/Revised**)

Yr 10

FTTN

FTTP

Yr 20

FTTN

FTTP

GDP

12.8 / 10**

9

GDP

26 / 20**

23

Sales

6.4 / 5**

3

Sales

13 / 10**

11

Cash

(1.4)^

(2.7)

Cash

(0.7) / (1.0)**

1.7

Profit/(Loss)

(1.4)^

(0.5)

Profit/(Loss)

(0.7) / (1.0)**

2.5

FTTP commences at Yr 4: (Old/Revised**)

Yr 10

FTTN

FTTP

Yr 20

FTTN

FTTP

GDP

12.8/ 10**

12

GDP

26 / 20**

26

Sales

6.4 / 5**

5

Sales

13 / 10**

12.5

Cash

(1.4)^

(1.8)

Cash

(0.7) / (1.0)**

2.5

Profit/(Loss)

(1.4)^

1

Profit/(Loss)

(0.7) / (1.0)**

3.4

FTTP commences at Yr 2: (Old/Revised**)

Yr 10

FTTN

FTTP

Yr 20

FTTN

FTTP

GDP

12.8/ 10**

15.2

GDP

26 / 20**

29.1

Sales

6.4 / 5**

6.3

Sales

13 / 10**

14.1

Cash

(1.4)^

(0.9)

Cash

(0.7) / (1.0)**

3.4

Profit/(Loss)

(1.4)^

1.7

Profit/(Loss)

(0.7) / (1.0)**

4.3

FTTP commences at Yr 0: (Old/Revised**)

Yr 10

FTTN

FTTP

Yr 20

FTTN

FTTP

GDP

12.8/ 10**

18

GDP

26 / 20**

32.2

Sales

6.4 / 5**

7.8

Sales

13 / 10**

15.7

Cash

(1.4)^

0

Cash

(0.7) / (1.0)**

4.3

Profit/(Loss)

(1.4)^

2.6

Profit/(Loss)

(0.7) / (1.0)**

5.2

Analysis
What these figures show, is that:
- FTTP is much more profitable for NBN Co. than FTTN, even when running eight years later. Profit in this case is Revenue less OPEX less Depreciation, where FTTN is depreciated over ten years, and FTTP is depreciated over 25 years. FTTN never makes a profit, nor generates positive cashflow even after 20 years. There is a cash benefit relative to FTTP though. Roughly $2100^ is saved in the case where FTTP starts eight years later than FTTN. But by Yr 20, FTTP has generated $1500 ($1800**) more cash, for the Yr 8 scenario. (Unchanged by Revision**).
- FTTP generates as much GDP as FTTN, so long as FTTP is no more than four (eight**) years later [Revised **]
- the PM is correct. when FTTP is six or eight years later than FTTN, greater customers sales and GDP is generated by FTTN. But a four year delay, makes the outcome by Yr 10 and thereafter almost identical. (Revised**: FTTP generates as much GDP as FTTN, even if eight years late at Yr 20).
- FTTP is generally superior to FTTN whenever the gap between availability is less than four years.
- none of the FTTN scenarios is profitable for NBN Co.

The Yr 10 - 20 figures must be more suspect for FTTN revenue, since the likelihood of revenue stability after the ten year useful life of the FTTN network (especially relative to the FTTP network) must be suspect. The FTTP is upgradeable for the foreseeable future, and likely to Yr 20.

Next
The next step is to compare the $30B statement. Can the PM's statement that $30B is saved by using his MTM (ie FTTN, HFC) rather than FTTP really amount to a $30B saving? That will have to be addressed in the next post.

Sunday, December 6, 2015

NB: Update: 7 Jan 16. The Delimiter comment picked up a calc error** in the below post.
I did allocate the FTTN costs/revenue over 1 year not 1.3 years, which inflates the OPEX pa and the Revenue pa for FTTN. The total diff FTTN vs FTTP being about the same, as the Rev and OPEX changes offset. Makes the OPEX diff $5 per month, and the Revenue $25 per month in favour of FTTP over FTTN. So about the same difference overall. Great to see Delimiter readers paying so much attention to the detail. Revisions identified below with **.
Thanks to david 04/01/2016 at 3:55 pm at the Delimiter comments for the catch.
== Original post

The National Broadband Network (NBN) is Australia's plan to connect all Australians to faster broadband. The current Liberal/National government plans to connect about 25% of premises to cheaper to install ($2,100 per household), faster to roll out FTTN. The previous Labor government aimed to connect 93% of premises to more expensive to install ($4,400 per household) and slower to roll-out FTTP.

ANALYSIS
It costs $4,400 to install fibre to the premises (FTTP) but only $2,100 to install fibre to the node (FTTN). Recent figures from NBN Co suggest that when the OPEX (Operating Expenses) paid per year to run these services and Revenue generated from these services is taken into account, then FTTP may be better value than FTTN in as short a period as 6 1/2 years. See the Graph below, which shows Cash generated by FTTP exceeds that generated by FTTN after 6 1/2 years. The graph shows total costs for FTTP and FTTN (including CAPEX and OPEX) become equivalent ten years after installation. Coincidentally, the graph shows FTTP breaks even (total revenue exceeds total costs, including CAPEX), at the same time, after ten years. The equivalent breakeven time for FTTN is 30 years, using the numbers below. This graph does not take into account build time, which I will deal with in a second post. **Cash impact of graph unchanged.

This data suggests FTTP is better value than FTTN when you take into account OPEX and Revenue after 6 1/2 years. FTTP is not only cheaper to run per annum (OPEX $220 less for FTTP; $570 vs $350 i.e. close to $20 per month), but generates more average revenue ($785 vs $640, close to $10 per month). This difference totals about $30 per month FTTP > FTTN greater margin per household for NBN Co. This is a total net benefit of $360 per household per year for using FTTP over using FTTN. The CAPEX difference of $2300 ($4400 - $2100) would be earned back in 76 months i.e. $2300 / $30. Over 25% of say 10M households, that works out in total to be a benefit of $900M per year ($360pa * 10M * 25%). So over the say ten year life of FTTN, the benefit is approaching $9B total. The longer FTTN remains in place, the greater the foregone benefit for not switching to FTTP. (NB:** OPEX $90 less for FTTP; Revenue about $300 more for FTTP; diff about $30 per mth).

This annual and total benefit does not take into account extra CAPEX expense to replace the FTTN with FTTP. This would be an extra difference between FTTN and FTTP.

Thus, assuming these figures are correct FTTP would pay for itself, compared to FTTN within 6.5 years, according to NBN Co's numbers on the slide linked above, based on differences in Opex and Revenue, regardless of nearly 100% greater CAPEX on FTTP.

But this is the first time the HFC slide has brought all those numbers easily together. Such information could have been presented in the cost benefit analysis but these numbers tell such an interesting story, that surely I would have remembered that.

Summary: It makes sense to spend $4,400 CAPEX on FTTP (rather than $2,100 on FTTN CAPEX) when the OPEX and Revenue make the margins much more favourable for FTTP than for FTTN. The OPEX and Revenue figures from the HFC slide indicate about $30 per month margin benefit (OPEX plus revenue difference) for FTTP over FTTN or $385 per annum. This margin benefit makes FTTP more attractive than FTTN after 6 1/2 years of installation.

Thursday, November 26, 2015

It's innovation week in Melbourne next week, and this is my blogpost contributing to that event. So here are a few reflections on my time involved with Innovation.

Reflections
First, I'll paint a little context about me. I work for ANDS[1], a Federally funded innovation project, to invest in the research data infrastructure of the 21st Century. ANDS encourages researchers to better manage and share research data, and universities to manage research data as an asset. I wrote my Innovation PhD at UQ Business School about understanding innovation in a complex dynamic environment, looking at how and why consumers switched to smartphones[2]. See more of my work and career at LinkedIn[3].

Challenges
Innovation is not simple and easy, involves seeking answers to hard questions, and working towards building a better world. This takes time and effort, and sometimes slow progress. My work relates to industry, research, policy and data and linking all together in a continuing dialogue.

My industry work at ANDS is about helping Universities to transition to managing research data as an asset. This involves training, discussions, and community events. Such events are where people get supported with knowledge delivery, skills building and gently building the business case for ANDS work. We see ANDS work as an innovation that creates value for Universities, researchers and the nation. As a value specialist, I am always pushing for a deeper understanding of what value means for ANDS and those we engage with. This work supports ANDS goal of "more valuable data for Australian research".

About 10% of my time, is spent on research where I focus on questions like: how to measure innovation and value creation? How to manage innovation and value creation? This is tricky since value is much more than tangible assets, and finding ways to measure the intangibles is challenging. See my work on dimensions of value[4]. I found 12 dimensions, such as time, simplicity, need and reliability. This work also involves talking to industry, and other innovation academics (for example, Prof Paul Jensen, Unimelb, Prof Jason Potts, RMIT, A/Prof Tim Kastelle, UQ Business School). I am also working to encourage an ongoing forum, like the ANDS Communities events, to bring Industry, Academics and Government into a regular discussion. I call such a forum, the VCIPP[5] (Victorian Council for Innovation and Public Policy), to explore positive steps in Victoria to better understand, manage and exploit innovations. This is similar to the Victorian Labor policy[6] for Innovation.

Lastly, I am very interested in helping Innovation policy people think about innovation as a complex, dynamic system. Thinking about innovation this way means you need complex concepts like value creation to help understand that type of innovation. Trying to expose where value is created leads me to work creating public datasets that researchers can mine for such information. I see the ATO (Australian Tax Office) as a key data curator of relevant data. Data such as revenue and profit data by industry, location and for both companies and individuals are important proxies for innovation. The company data is public[7] and shows 12 years of Australia's growth over 250 industries. I am working with the ATO to get access to individual data, hopefully by postcode, but more likely by region, where I can show growing and shrinking industries by location as a proxy for innovation.

Advantages

Innovation is a difficult but important topic to understand. Many resources are available to draw on, such as Government policy reports[8][9], Consulting reports[10], as well as academic literature [11], and podcasts discussing innovative industries[12][13]. Navigating this mass of information, I use my Twitter feed to collect and record these useful data sources. This material is endlessly interesting but making sense of it is time-consuming. The world seems to be changing so fast, that our personal area of deep understanding seems to shrink year by year. Yet I am positive about how much difference motivated and interested people can make working together.

I look forward to Innovation Week as an opportunity to have many interesting conversations with many interesting people, to help make Victoria and Australia a better place, through learning, working and engaging around innovation.

For more, you can see my blog[14] which links to my academic writing, see me tweet innovation references on interest (@valueMgmt), or mail me at richard.ferrers@ands.org.au.

Sunday, November 22, 2015

Background: A close friend is a screenwriter with a feature film before Screen Australia. If the Screen Australia Board signs off in April, the movie will go into pre-production immediately to shoot in six months for an Easter release in 2016. They have funding from a major film corporation. The producer has given the writers a share of the producer's profit (a few per cent).Update: The film is in post-production, with a release date in later 2016.

The film is a romantic comedy ensemble party movie.

The Problem: How does the film make money in a era of easy film piracy? [1] So I wrote a little analysis document thinking through some of the issues. Where I ended up was in thinking of the viewers as a community rather than purchasers. If there are lots of viewers who don't pay for the film, how can the film producers engage with those viewers and bring them into the community?

Recently I found on wikipedia, entries for social television and second screen. This is about community engagement around media events. Twitter for instance is crazy around live events, like the football World Cup, the SuperBowl, and shows like American Idol. But this event is a live event viewed once. A movie is a non-live event viewed by many people at different times. How can we bring the two types together? Social community media around many people watching an event all at different times.

The Solution: I foresee an app where viewers (including of pirate copies) can participate in a community, sharing messages (and audio), synchronised with the media event. This app will simulate the experience of being in a movie theatre, through text and audio, of watching a film in a group, in a crowd, in a theatre. I see three functions, synchronised to the film:
- add a text or audio comment (a few seconds), one word, or a few words
- link to buy/rent the film, and provide a message when the film is available at a viewer requested price (price discovery), to take advantage of the positive mood following viewing a film, to legally own the film
- share a review at the end of the film (text or audio); as the credits start to roll (a longer 30 second sound bite).

In practice: How to share the comments?
I see the text comments could form a subtitle track that flashes up on the screen. Subtitles could be the one word comment, which flash up very quickly, or the longer few word comments.
Subtitles could contain very many comments, so there should be a way to limit the number of comments, by location, by friends, by people following, by recommendation.

I see the audio track reproducing the social experience of seeing a movie in the cinema, with ooohs and ahhs and oh nos.... alongside the soundtrack of the film. The volume of these audio comments could fade in volume based on distance from the viewer (friends, location, recommendations).

Exploiting this idea
I see two ways to commercialise this idea. I pitched this idea to my wife who suggested taking it to the funding film corporation as an example of functions to include in an app for her film. The other option is to take it to a business which looks at many films and make it available as a function within their app, eg Gyde or IMDB.

Update: I pitched the idea to a major film studio, who said "we don't want to invest / assist in any product that improves the experience of consumers, who pirate [our] films".Update 2: I pitched the idea to a VC, Angel Investor at the ALP Conference, and his response was #disruptive ideas are unlikely to get support from mainstream industry players, and are better exploited as a startup opportunity.Update 3: I pitched the idea to the Launch Hackathon conference in San Francisco, Feb 2016. This blog post which has been private since Feb 2015, is now public to allow the Hackathon committee to scrutinise the project. This blogpost is the one pager I recommend to entrepreneurs to express their core business concept.

The contents of this blogpost are Commercial in Confidence, and in exchange for reading them confer rights of any exploitation of this idea, to a 10% ownership interest of such exploitation by this author.

Note
[1] (Some) Films are still making a lot of money and having many piracy downloads eg Captain America $714M sales | 0.7M pirate downloads, 22 Jump Street ($331M, 650k downloads), Guardians of the Galaxy ($333M, 1.35M pirate downloads). These films are aimed at a similar audience as the film before Screen Australia ($5M), compared to the $50 - $170M for the above Hollywood films. Piracy download data take from YIFY (yts.re), and Box Office data from boxofficemojo.com.